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President Signs to Give Legal Cover to Real Estate Amnesty Scheme

08/12/2016

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Pakistan real estate sector has been passing through a hard time from previous several months due to government imposed tax on this sector. A property buyer has to pay an additional withholding tax rate of 4 percent besides 3 percent on a transaction if he fails to file returns. Resultantly, by the end of year, the Federal Board of Revenue (FBR) is facing a hefty shortfall of more than Rs100 billion in revenue collection, for which the government has decided to take action to curb the effects.

The president has signed the act, which was already passed by the National Assembly on November 30, despite opposition from certain sectors. It is the third such scheme to be announced by the Pakistan Muslim League (PML-N) government since 2013. It is considered to be one of the commendable steps the government has taken to regulate the real estate sector throughout the country. However, it has launched the tax amnesty scheme after being failed to regulate the realty sector following tough opposition from various sectors.

According to details, the scheme will be available for an unspecified period as no cut-off date has been mentioned but it will be applicable to all those properties, purchased before July 1, 2016. Another side of the story is that under this scheme, people who have whitened their money will not be asked to mention their source of income.

As per a tax official, the scheme would continue at least until June 2017, when proposals for the next year' s budget would come under discussion. "It will be considered in the next budget whether to continue the scheme or not," the official said. Under this scheme, the FBR is expected to collect around Rs40bn or Rs50bn under the scheme.

Tax will be paid on the difference between the revised FBR valuation rate and the District Commissionersí (DC) rate under the scheme. However, both rates do not present the actual values of properties and the scheme will exclude around 90 percent of the actual value from the tax net.

The normal tax rate can be as high as 35pc. On top of that an equal amount of tax can be levied on such transactions in the form of penalties. According to FBR, around Rs4,000 billion is parked in the property sector every year, due to which the sectors needs to be regulated on immediate basis.